Wednesday, 17 February 2016

Economic growth may have slowed in the final quarter of last year but,
as the Office for National Statistics informed us earlier today, this didn’t prevent a further big quarterly
rise in employment of 205,000 (0.7%), almost all full time, split roughly
equally between employees and self-employed people. This helped keep the
unemployment rate steady at 5.1% - the number of jobless people actively
seeking work fell by 60,000 but 88,000 previously economically inactive people of
working age entered the labour market while the overall economically active
population (aka the total labour supply, including people above working age and
migrants) increased by 145,000.

Despite the good news on jobs the juxtaposition of another record
setting quarter for the working age employment rate (which has now reached 74.1%)
and somewhat softer economic growth suggests deterioration in the UK’s already
dire underlying labour productivity performance (though we won’t have figures
to confirm this until later in the year).. This, along with strong growth in
the active labour supply enabling employers to fill most job vacancies without
too much difficulty, helps explain why average weekly earnings excluding
bonuses are still rising at an annual rate of only 2%.

For the time being low consumer price inflation is protecting workers
from the consequences of weakness in UK productivity and pay. But we face a
rude awakening on jobs and real living standards once the price level starts accelerating
at a more normal pace (i,e, moves back toward the Bank of England’s target rate
of 2% CPI inflation) and/or if economic growth slows more sharply than
forecasters at present expect.